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July 2018: International Trade Practice Victory

July 2018

In an age of heightened scrutiny of illegal and unfair trade practices, one of the means by which companies have sought to evade tariffs (such as antidumping and countervailing duty orders) is by “finishing” subject merchandise in a third country. When the Commerce Department issued triple digit antidumping and countervailing duty orders on finished and unfinished OCTG from the People’s Republic of China (“PRC”) in 2010, some enterprising economic actors routed unfinished OCTG from the PRC through Indonesia where it was subsequently heat-treated or “finished”. American OCTG producers including Quinn Emanuel’s client, U.S. Steel, were directly harmed by this tactic.

The Department of Commerce disagreed with the arguments of the enterprising importers and—applying its substantial transformation test—found that because the OCTG was not substantially transformed in Indonesia, the PRC was still the country of origin and therefore the orders on OCTG from the PRC applied. The Court of International Trade, however, held that Commerce had erred when it applied its substantial transformation test and that instead Commerce should have used the more limited circumvention analysis (under which the OCTG at issue would not be subject to the duties). The Court of International Trade then remanded the case back to Commerce until it conducted a circumvention analysis and determined that the OCTG at issue was not subject to duties. On behalf of U.S. Steel, Quinn Emanuel appealed to the Federal Circuit.

The Federal Circuit vacated the Court of International Trade’s relevant orders and held decisively that “Commerce is entitled to use the substantial transformation analysis to determine whether an imported article is covered by antidumping or countervailing duty orders in the first instance.” The immediate consequence of this ruling is that importers will no longer be able to evade tariffs on OCTG from China by finishing the OCTG in a third country and a direct harm to U.S. Steel is foreclosed. A long-term outcome is that Commerce’s ability to determine the country of origin in complex cases of globalized manufacture has been recognized and protected